Everything You Need to Know About Applying for the Employee Retention Credit (ERC) in 2021

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You won’t have heard of the Employee Retention Credit (ERC) until recently. If so, you’re not alone! That’s because organizations who applied for the Paycheck Protection Program (PPP) mortgage in 2020, weren’t eligible to apply for the ERC. In 2021 though that has all changed. Now companies who implemented for the PPP mortgage are eligible for the Employee Retention Credit both retrospectively and in 2021, which is HUGE! This news changed into launched in December 2020 with the passing of the Consolidated Appropriations Act.

So, what does this all imply? What precisely is the Employee Retention Credit and the way do you qualify to get hold of it? In this newsletter we are able to wreck the whole thing down for you so that you have a terrific know-how of what it is and how you may get the most of your Employee Retention Credit!

First, what’s the Employee Retention Credit?

In order to recognize the Employee Retention Credit, we are able to take a time machine all the manner back to March 2020 (do not worry we will make certain to speedy come returned to modern-day.)

In March of 2020, the U.S. Federal Government signed a $2 trillion relief act, regarded at the CARES Act, that geared toward providing comfort to individuals, organizations, and Good Onboarding for Better Employee Retention authorities corporations. As a part of the CARES Act, in case your commercial enterprise was hit hard due to the results of COVID-19, you were eligible to use for certainly one of two incentives that could help agencies preserve employees on group of workers all through the pandemic. These incentives have been called the Paycheck Protection Program (PPP) and the Employee Retention Credit (ERC).

The PPP loan turned into the most awesome of the 2 and it provided forgivable loans to agencies with fewer than 500 personnel. If you carried out for the PPP loan, then you definitely had been barred from applying for the Employee Retention Credit. The Employee Retention Credit become now not restricted by the wide variety of personnel and is a refundable payroll tax credit. The credit changed into available to tax payers who either had their commercial enterprise fully or in part suspended all through a quarter in 2020 or had a drastic drop in gross receipts as compared to quarters in 2019. If they certified, they could get hold of a credit score of up to $five,000 per employee that acquired a certified wage.

Okay, that become a amusing quick synopsis of wherein we got here from. Now let’s get lower back to the destiny and communicate approximately what has modified inside the present day!

New Law Extends Opportunity to Claim the Employee Retention Credit

In December of 2020, a brand new remedy law changed into handed, the Consolidated Appropriations Act. This act extends the Employee Retention Credit date and also modifications who’s eligible for it. Originally, the ERC date was imagined to end at the cease of 2020, however, it’s miles extended via June of 2021.

In addition to the extension date, the most important eligibility change is everybody that borrowed a PPP loan can’t most effective apply for the ERC in 2021, however can go again and observe for it inside the 2020 12 months. YES, this will suggest a incredible deal for agencies! The quantity you acquired from the PPP loan, but, may be special than the ERC. The PPP mortgage must be spent in most cases on payroll, where the ERC is based on wages that qualify, together with healthcare expenses.

So, How Do You Qualify?

In order to be eligible for the Employee Retention Credit, corporations have to show one of the underneath instances:

That operations were completely or partly suspended due to authorities orders
If you’re applying for the credit score in 2020, you need to show a 50% or greater decline in gross receipts from the identical region a yr prior
Or if you are applying for the credit in 2021, you need to reveal a 20% or extra decline in gross receipts from the same sector in 2019

What Wages Qualify?
If you meet one of the above standards, then the below wages will qualify for the time frame you are making use of for:

From March 13th – December thirty first 2020, if you have less than or identical to 100 full-time employees in 2019, all wages qualify. If you’ve got extra than a hundred complete-time employees in 2019, most effective wages for employees now not providing services qualify.

From January 1st – June thirtieth, 2021, when you have less than or identical to 500 full-time employees in 2019, all wages qualify. If you have greater than 500 complete-time employees in 2019, best wages for employees no longer providing services qualify.

*To determine how many full-time personnel you had in 2019, use Form 1094-C. On page 2 in column B, input the variety of full-time employees you had in each month. Add the 12 numbers up and divide it by way of 12. That will come up with the quantity of complete-time personnel you had in 2019.

How Much Credit Can You Receive?

For credit applied for between the March 13th – December 31st, 2020 range, a credit score can be claimed as much as 50% of the first $10,000 in overall qualified wages paid and healthcare costs. This is equivalent to $five,000 in line with worker.

For credits implemented for between January 1st – June thirtieth, 2021, a credit can be claimed up to 70% of the first $10,000 in general qualified wages paid and healthcare expenses in line with sector. This is equivalent to $7,000 according to employee for each area.

How Do You Receive it and How Do You Submit for it?

Okay, we just dove into A LOT of distinctive facts! Feel unfastened to take a breather in case you need one. *DEEP BREATH*

Now onto the final stretch!

As you were reading the above, you may already have a gaggle of numbers spinning to your head looking to discern out how much credit you might be capable of receive. Once you take a seat down and placed all the numbers collectively, you will report your 2020 general qualified wages and related medical insurance prices at the Adjusted Quarterly Federal Tax Return, Form 941-X. For 2021, you may document your total qualified wages and medical health insurance costs on the quarterly employment tax return on Form 941. Note, this shape is currently in draft mode and can not be used. The very last 2021 shape has no longer been launched yet.